Yesterday, the government announced the establishment of a new trust fund scheme called Skim Amanah Rakyat 1Malaysia or SARA 1Malaysia. Basically, its a fund similar to ASB (Amanah Saham Bumiputera) where people with a household income of below RM3000 can purchase RM5000 worth of shares at RM1 per share and get a guaranteed return of RM134 per month.If you don’t have RM5000 on you, you can make a loan from all major banks. The monthly re-payment is set at RM84 which means after deducting the monthly repayment you will get a net profit of RM50. Sounds good? Well, not so fast.

Disappointment?

It really does sound good, but there is one thing that makes it not really a worthwhile investment. In fact it may look like some more candy from the government right before elections.

The major disappointment that I’m talking about is everyone is limited to 5000 shares per person and because it’s a dividend base scheme, the returns are not reinvested to buy more shares meaning your returns are stuck at RM134 until the end of time, unless the government decides to revise the return rates somewhere along the way. Oh ya, not to mention the price per share also does not increase too, so selling the shares doesn’t make any difference. Not that interesting now huh? I mean RM134 is really not a lot and for most, it’s not worth giving up RM5000 to get that every month. However, for the lower income group that money can help a lot.

The Bottomline

So based on those facts, what can we conclude?

Well, I’m guessing if you bring back RM3000 a month and you’re single, you might not have any interest in this anyway. But if you earn the same amount but have many children and interested in this scheme, you most probably don’t have RM5000 in hand, if you have it, it wont be worth investing your own money. So, if you still want to invest, take up a loan. Although you end up with only RM50 per month, its pretty much free money because you have already covered the monthly repayment. And after you finish paying the loan, you get RM134 per month nett. There’s nothing much to loose.

On the other hand, after a few years, inflation will catch up with that so called “free money” and RM134 won’t be worth much let alone RM50 (if you take a loan). If you DO take a loan, by the time you have finished repaying the loan, RM134 might only have a negligible value.

It’s also good to speculate who will potentially profit from the whole venture; the stakeholders, so to speak .

The Banks.

They will profit from the loans issued. Let’s say borrowers get a 5 years repayment term (60 months), this means the total repayment will be at 60 months x RM84 (the monthly repayment amount) = RM5040. However this is just a minimum estimate. I don’t think the banks issue 5 year loans for only a RM40 profit, so, until I know the correct repayment term, I can only speculate how much the banks earn.

The Government.

By now you might realize that participants of this scheme might not really have much to gain from it. Maybe, the gain is not in the form of money, rather political. Especially as the elections draw closer, the government wants to be seen as lessening the burden of the people, and I’m not saying this scheme does not do that, but, come on….they can do better than this. The way I see it, the banks might be the ones who profit the most because we all know how banks profit from selling loans and stuff.

Despite all the stuff discussed above, if you want to participate in this scheme, don’t let me stop you. After all, you won’t loose anything by participating. It’s just that you don’t gain much either. Choose your investments wisely.

iMyn